A chance of making a mistake because of
misunderstanding or ignorance of certain nuances in taxation can cost you a
fortune. Following the outbreak of COVID-19 in Portugal, the Portuguese
government has adopted several new tax relief and deadline shifting
initiatives. Stay well and safe, and step out of your homes again equipped with
more knowledge of taxes in Portugal.

The financial cost of the
pandemic is escalating. Forecasts suggest the world faces a U- or V-shaped, or
even a W-shaped recession. Your industry – from commercial real estate to
aviation – has changed a lot and may suffer more write-downs and upheavals
because of the COVID-19 aftereffects.

You are planning to
challenge your status quo. You intend to invest and apply for residency by
investment.

You’ve
heard that 130,000 foreigners have got
the Golden Visas and moved to Portugal since February, and they call it the most peaceful and welcoming European country
for expats.

The good
news is that the tax rates are going to
remain reasonably low (except for the personal income tax).

Moreover, some fees are not collectible (unless
they are merely integrated into the taxable profit, like, for example, the
Capital Gains tax).

You think you’d rather start with little steps carefully planned.
Slowly, to avoid a bumpy ride. But then it might be too late, so you’d better
hurry up. There is a risk of finding out soon that Lisbon and Porto can
disappear from the list of places where you can get the Portuguese residency by
investment. Such restrictions, however, will
not be imposed until at least 2021. Experts recommend you should act fast.

Oh, well. You wish you could rely
on common sense and sound advice of those seasoned tax professionals who are in the know. Our experts
are ready to explain and assist in your prompt application for the Golden Visa,
as well as in your further personal or business matters in Portugal, to help
you avoid the unnecessary pitfalls. Please send us an e-mail
request, or contact us by any other preferred channel of communication.

Which questions should you discuss with our
experts in 2020?

Is it true what social media write about the Golden Visa program
suspension?

The offices of SEF
(Servico de Estrangeiros e Fronteiras, Office for Foreigners and Frontiers) remain
open, though they work remotely during the lockdown and relief period. The
actual situation is as follows:

The Portuguese
government has stipulated temporary procedural amendments, but only and exclusively
for purely and practical reasons, only until 30 June, and only for the
appointments arranged before March

As the
state of emergency has been lifted already, there is a commitment for faster
processing of the previous, current and future residency applications

There are
no further delays, restrictions or refusals regarding previous Golden visa applications

No major
changes have been introduced by the government into the Golden Visa program

The
previous proposals for new changes have been now suspended and are likely to be
abandoned for good or at least for a couple of years

Why is Portugal called the country with the lowest taxes in Western
Europe, while the income tax rate is 48% plus surcharges?

The 48%
tax is only charged if the declared income exceeds 80.000 EUR

The 5%
surcharge is payable only if the declared income is at least 250.000 EUR

Taxation
in Portugal is quite mild, socially responsible. Its principles are similar to taxation
in Sweden, Finland, Denmark or Japan: residents with higher incomes pay higher
taxes

Each
investment project should be discussed as a specific case. Your Portuguese taxes
will depend on the value, property, other features.

If you
need assistance in calculating your Portuguese taxes or look for a legal way to
reduce your fiscal burden, it is worth contacting our professional experts.

What will happen to personal taxes in Portugal in 2020?

This is perhaps the
most important question to ask. In Portugal, the local attitude towards tax
evaders is quite dismissive, and deliberate non-payment of tax dues is commonly
considered immoral and held with disdain and scorn. When the Fiscal Service
finds out the facts of illegal practice of outright tax evasion, the
consequences involve penalties and can be disastrous. But with your social
values and commitment to fair play practices, you will have no reason to worry.

Before you read
further, we hope you understand that unless you discuss your specific questions
with our experts, we cannot accept any responsibility for whatever conclusions,
risks, and any negative consequences may arise from your interpretations and use
of the hereby generic information presented in this post and other articles published
on this web site. Our broad yet simplified outline of the taxes in Portugal
should not be used as straightforward guidance for any practical implication.

May we officially assure
you that our experts’ professional tax advice is always relevant, comprehensive, and invaluable when given on your request
concerning YOUR PARTICULAR situation and YOUR SPECIFIC concerns taken into
account.

Many things are not obvious at first sight. However, they can be extremely important and
make a great difference in situations when the Portuguese taxes and fees are
subject to inevitable payments, as well as when you can legally save money.

Let us just offer a
few examples showing that taxation is a sophisticated category and should be
considered on a case-by-case basis:

The
Portuguese taxes and fees charged in 2020 are slightly lower in the Azores or Madeira compared to the continental
area. This is for two reasons: the distance from the main business and
administrative zone, and the status of special economic zones.

The Personal Income-tax (IRS) is levied on a progressive scale. For some creative
jobs, even if such people are not officially employed, there may be some tax relief,
but such cases should be analyzed specifically.

Individual
entrepreneurs pay the mandatory fees either online, or at the local tax
offices. You can legally save money if your income is approximately the same as
the average wage in the country. The annual income which is less than the minimum filing amount is tax-free.

Pensioners who are citizens or permanent residents of Portugal are legally exempt
from tax on income received by them from foreign pension funds. The permanent
residence needs to be officially confirmed.

There is a
big difference between residents and
non-residents. Portuguese taxes of residents are computed from the income earned
or received in any part of the world. Taxes of non-residents are calculated
with consideration of international DTA – Double Taxation Agreements. DTAs are
concluded with 78 countries that are Portugal’s major trading partners and
jurisdictions, whose citizens most often hold temporary or permanent residence
permits.

The IRS rates are as follows (for more details, please refer to our experts):

up to 7,000 EUR – 14.5%.

from 7,000 EUR to 20,000 EUR – 28.5%.

from 20,000 EUR to 40,000 EUR – 37%.

from 40,000 EUR to 80,000 EUR – 45%.

above 80,000 EUR– 28.5%.

Our analysis shows
that if the average monthly salary earned in the first quarter of 2020 is 1188
EUR, and the expected total yearly wage is 14256 EUR, the IRS rate will be at
28.5%. The lowest threshold IRS rate is higher than in most other countries but
lower than in Denmark, the Netherlands, and Sweden. The highest rate is less
than in Finland, Japan, Austria, and many other countries (18 jurisdictions in
total).

What is taxable, what can be deductible?

Solidarity surcharge

Solidarity surcharge is
an additional fee payable at different rates, depending on the taxable income:

3.5 % – if
the taxable income is above the minimum (up to 80,000 EUR)

2.5% if
the income is between 80,000 and 250,000 EUR

5% if the income
is 250,000 EUR or more.

It was introduced in
2013 following example of several EU countries. Its main purpose is to provide
additional funding for major unifying projects.

The taxable income

The taxable income includes
both earned and unearned income:

employment
income (salaries and wages)

business
income (revenues)

professional
income (royalties)

investment
returns

rental
income

net asset
value growth

pensions.

Expats must register
as taxpayers before they can start earning money in Portugal.

Tax deadlines revised in Portugal

The Portuguese tax
year starts on 1 January and ends on 31 December, with returns to be filed the
following spring. Usually the maximum possible term for filing a tax return
depends on the method used: March 31 (filing a paper tax return) or April 30
(filing taxes online). If these deadlines are missed one cannot be entitled to
the tax exemption, and some penalties are charged.

This year, all IRS
statements for 2019 incomes are due between 01 April and 30 June 2020, to be submitted
electronically.

The IRS reimbursement
deadline, ends annually on July 31st, but this year it shifted to August
31, 2020.

Tax liabilities in
Portugal in 2020 allow for deductions (e.g. education or health expenses) and
personal tax credits. The tax credits are refundable depending on your marital
status and income.

The new deadlines for
completing your tax returns in 2020 are as follows: 15 March – 15 April for
employment and pension income. 16 April – 16 May for all other types of income.

As the Portuguese government
adopts new provisions regarding taxes, we advise you to seek professional
advice from our financial experts.

This transfer of title
tax is payable by the property purchaser. The purchaser/taxpayer can be a legal
entity or an individual, though it is traditionally considered
“personal”. The tax is levied once; the liability arises at the time
of signing the transaction. Its rate and value depend on two aspects:
geographical location (mainland Portugal or islands) and the type / intended
purpose of the property (as the main domicile, or for periodic/temporary
residence – options 1 and 2). This tax is paid before signing the final deed of
sale.

The IMI ta paid
annually.The basis for its calculation is the ownership of real estate. The
rate varies from 0.3% to 0.8% and depends on the region where the property is
located. The minimum rates (0.3%) are is Albufeira and Alcoutim, the maximum rate
(0.45%) is in Vila Real de St.Antonio. It should be noted that in 2017 the
Government introduced an additional discount, the amount of which depends on
the number of children in the family: 20 / 40 / 70 EUR for 1, 2, 3, or more
children.

This article does not
in any way represent a comprehensive statement of the issues discussed. Some IMI
tax exemptions are available in certain cases. Therefore, please ask for the advice
of our experts.

Stamp Duty (IS, Imposto do selo / Stamp
Duty)

This tax is charged
only once, for example at the time of the purchase/sale of real estate. The
rate is flat and does not change – 0.8% of the transaction amount.

When buying a
property, it is advisable to seek legal advice from a lawyer. Legal fees are
covered separately from the Stamp tax.

The ISV tax is paid once after the vehicle
has been registered and the license plates have been received. The rate depends
on the volume of the engine and its environmental safety (i.e. the amount of
CO2 emitted).

The IUC tax is annual and depends on the
features of the vehicle (model, age, engine capacity, fuel type). For special
vehicles – trucks and buses – the operating time, unladen weight, and the number
of wheels are additionally taken into account.

NHR (Non-Habitual Resident)status

NHR is a special regime
of tax residence introduced since 2009. If you comply with several qualifying
requirements, you may get quite a significant fiscal relief. The NHR ruling applies
(subject to certain conditions) to pension income, employment, income from
self-employment, ownership of industrial and/or intellectual property, rent,
investment, capital gains.

The most important
news is the introduction of the flat rate of personal income tax (10%) on the
foreign-source pension income of new residents who move to Portugal after 31
March 2020.

NHRs registered before
31 March 2020, or tax residents applying for the NHR tax regime (until the
application deadline of 31 March 2021), can enjoy tax exemption (under certain
conditions) for their foreign-source pension income.

Portugal offers NHRs
the full exemption from certain types of fees, and a tax credit is available
for the tax paid abroad.

After you become a
resident in Portugal, your worldwide income and certain gains become liable for
Portuguese taxation. New residents can enjoy some advantages.

If you are a retiree or
going to retire, you should also ask for advice and discover a solution for
your safer retirement.

The information on
this site is not comprehensive and is not a one-size-fit-for-all recommendation.
It is provided here only for your general awareness of the variety of taxes to
be payable or exempt depending on each particular case. For reliable solutions
please contact our experts.

What will happen to business taxes in Portugal in 2020?

Portugal is neither an
offshore, nor even a mid-shore country, and the current corporate tax rates
cannot be called too low. But it does not mean that it is unprofitable to do
business in this country. Tax payments are a matter of social values and
responsibility, which we have already mentioned above: everyone is a prudent
taxpayer in Portugal, and everyone takes it for granted that there are reasons
for paying taxes. If someone is not
satisfied with this philosophy, it is better for such businesses to seek
another jurisdiction, or to develop business remotely, enjoying other
advantages of life in Portugal.

It is charged only
from corporate resident entities, applies to the worldwide income generated by
companies resident in mainland Portugal. The capital gain is considered in the
taxable base and is not taxed separately in Portugal. Profits of branches and
other subsidiary offices in Portugal are also integrated into IRC.

IRC is computed as follows:

The standard
flat rate is 21%. (for SMEs the rate is 17%).

The municipal
surtax is 1,5%.

The state
(national) surtax – at the progressive rates:

0% of the
gross income up to 1.5 mln EUR,

3% of 6 mln
EUR extra earned (i.e. the total income of up to 7.5 mln.EUR),

5% applicable
in case the income is above 7.5 mln EUR,

9% in case
the income exceeds 35 mln EUR.

Thus the maximum corporate tax charges will be 21%+1.5%+9%=31.5%

Business Tax Calendar normally coincides with the calendar year.
However, tax resident entities in Portugal, as well as permanent establishments
(“PE”) of non-resident entities may choose a different tax year.

IRC must be normally paid
within 5 months of the end of the accounting period.

Resident companies
have an important privilege: they can ask the Ministry of Finance for a grace
period (for valid plausible reasons).

Advance payments of
the corporate tax and the surtax are payable in installments based on the corresponding
previous year tax amounts in July, September, and until 15 December.

VAT returns have to be
completed and submitted periodically (monthly or quarterly) depending on the
turnover.

A Summary Declaration
referring to the intra-EU transfers of goods and services that must be
submitted before the 20th day of the following month, or the next quarter.

The deadline for
completing Portuguese corporate tax returns is between 16 April and 16 May each
year.

This year, because of
the COVID-19 situation, Portugal announced the extension of the deadline for
the corporate income tax return and some other duties and reports: the postponement
of the deadline regarding the first installment of the special payment on
account (due in March) to 30 June 2020; the postponement of the deadline for
filing the corporate income tax return (due 31 May) to 31 July 2020; as well as
the postponement of VAT returns submissions and payments, some other measures.

Please
note that there are restrictions ontax deductions. According to
the current Interest Limitation rules, companies may only deduct net financing
expenses up to the higher of the following limits:

Capital gains tax. As we have already said, it is not charged as
a separate tax in Portugal, or, more precisely and correctly, it is integrated with
Corporation Tax (IRC).

Operating losses. According to the current legislation, they can
be deferred (maximum – for 5 years) only when they do not exceed 3/4 of the
taxable income. In some cases, this requires the specific approval by the
Minister of Finance. However, reverse transfer is not possible.

Dividends. If they are paid out and received by resident companies, they are
exempt from taxation. The only condition prescribed in the law refers to the transparent
status (the beneficiary should not hold it) and possession of at least 10% of
the payer’s capital (term – 1 year).

VAT (IVA / VAT, Imposto sobre o Valor Acrescentado / Value Added Tax)

Like all other taxes
in Portugal in 2020, the VAT is levied on the supply of goods and services,
their import (in case the country of origin is not a member of the EU),
international services rendered in Portugal, and the purchase of goods from
other EU members.

There are 3 rates of the
VAT: standard (23%), intermediate (13%), and reduced (6%).

A VAT refund scheme is
available (only for local supplies, if they are made by non-resident
companies). However, the refund is a quite complicated procedure, so we
recommend that you seek additional advice from our experts.

As we have mentioned
above, there are two options for VAT tax periods: 1 month (annual turnover over
650.ooo EUR) and 1 quarter (if the amount is less than 650.000 EUR).

Monthly returns are
submitted before the next month, quarterly ones are submitted by the 15th date
of the corresponding month.

The suspension or
extension of eligible deadlines has been announced this year because of the
COVID-19 pandemic. The details are available if you forward your request to our
experts.

Tax on passive income (withholding tax)

These traditionally
include dividends, interest, royalties, income from intermediation services, or
capital investment income and rental income. There is no special tax on such
income in Portugal. Fiscal authorities calculate such levies according to
corporate tax rules (for individuals – like IRS). The amount of deductions
depends on the payer’s status and type of respective income.

Full exemption from
payments is allowed if it is stipulated by EU directives and bilateral
agreements that allow avoiding double taxation.

What remains unchanged?

They say, changes is
the new normal. In this section, we will talk about the so-called special
cases. They are often neglected or misinterpreted, and as a result a person volens
nolens becomes a tax evader. We will not be able to describe all the points that
are worthy of your attention in the short article, so once again we recommend
you to refer to our experts.

Social Security. The employer is charged 23.75% and the employee
is charged 11%.

Stamp duty. We’ve already written about it. In addition to real estate
transactions, it is still payable for the certification of certain agreements,
documents, and acts, as well as transactions that are not subject to VAT. The
rates depend on the types of transactions.

The annual duty is not levied.

Currency control. Is not practiced.

Transfer pricing. It is based on the OECD (Organization for
Economic Cooperation and Development) requirements and norms. Let us clarify
that companies are obliged to prepare and maintain documentation justifying the
pricing policy.

Thin capitalization refers to the ratio of debt to equity.
Formally, the relevant rules have been abolished (01.01.2013). But they have
been replaced by restrictions on tax deductions. Since 2013, the interest rate
has been consistently reduced, from 70% in 2013 to 30% in 2017 (still in force
today).

Controlled foreign companies. The profit of a non-resident entity that has
not been distributed may be attributed to interested resident participants
provided that its “home” jurisdiction is low-tax. In this case, taxes
are to be paid in proportion to the contributions.

Disclosure of information. It is mandatory in case of company
restructuring or transactions that may result in significant tax benefits.

Reporting. First of all, please note that reports (annual) are mandatory. The
document is approved by the General Meeting of Shareholders; the deadline is 3
months from the end of the financial year.

The publication of
information is optional.

Reporting is submitted
by the chief accountant. Format – online, deadline – until the end of June.

Requires mandatory
compliance with the Portuguese standards.

Mandatory reports: the
balance sheet, the income and revenues statement, and reference to relevant
information.

The information is
kept in the public domain (i.e. it is not a commercial secret).

Audit. Formally, it is optional (for limited liability entities). But if 2 out
of 3 indicators are exceeded within two years, the appointment of a registered
auditor (Revisor Oficial de Contas) is necessary.

Minimum requirements:

Revenues:
3 million EUR.

Net
assets: EUR 1.4 million.

Number of
employees: 50.

Annual Return. This report is an annual reference about the
current state of the company, including basic information about the business
structure, details of the company’s directors, shareholders and registered
office address, capital, stock value, etc. In Portugal, there are no legal
requirements for mandatory filing.

AIMI. The AIMI tax is the “extended” IMI ( the Addition to the Municipal
Property Tax (Adicional ao Imposto Municipal de Imóveis or AIMI). It is levied
on real estate assets. Please note that
IMI and AIMI are the two different taxes payable separately.

There are 3 AIMI
levels, depending on the value of the property(s) in your legal possession:

from 0.6
to 1 mln EUR your AIMI is 0.7%,

from 1 mln
to 2 mln EUR your AIMI is 1%,

from 2 mln
EUR and above your AIMI is 1.5%.

This year many things aredifferent from normal, and many figures and rulings may become
outdated tomorrow. The information
provided is a very broad overview of the current taxation policy in Portugal,
but we advise you to seek professional advice from a financial expert regarding
your specific situation and the latest developments in taxation in Portugal.
Please refer you further questions to our experts.

Will there be any obstacles for the Golden Visa applicants in Portugal
in 2020?

There is
no suspension of the program

Portugal
needs investment and reinvestment more than ever

There was
no closure of services in Portugal during the lockdown

There are
no restrictions for non-EU applicants, wherever they come from

The
backlog of previous residency by investment applications has been quickly
reduced, the pandemic lessons were learned, more efficient procedures are in
place

Some
relaxation measures have been adopted (for example, referring to the opening of
bank accounts).

Specific
questions need to be discussed with experts on
a case-by-case basis.

The Golden Visa application needs to be submitted by a non-EU citizen investing in Portugal

the applicants need to explain the best possible reason why they need the Portuguese residency by investment

the Golden Visa applicants need to prove they hold no criminal record in the country of their domicile

there needs to be proof that the applicant pays all taxes and fees involved in the transactions

the applicant needs to confirm the intention to visit Portugal at least once during the residency application process (to file the biometrics), even though all the paperwork can be done and submitted online

the applicant needs to obtain the NIF (tax payer’s number), open a bank account and transfer funds for investment

initially, the applicant is granted the Residence card for only one year(the visa waiverto enter, live and work in Portugal plus Visa-free travel within the Schengen member states)

in one year after the receipt of the residency permit, it should be renewed for two years, and then for the next two years

you need to spend in Portugal at least 7 days in year one, and at least 14 days during each consecutive period of two years

family reunification is allowed to spouse or partner, dependent children, and dependent parents

Permanent Residency or Economic citizenship applications can be submitted after 5 years of the Golden Visa

In our previous posts we have explained different aspects of the
Golden Visa application in Portugal. Please refer to our experts for more
details.

Disclaimer

This article is the
product of our sincere effort to outline the most comprehensive picture of the current
situation in taxation in Portugal in 2020.

But lets us offer once
again the two important remarks.

You’ve Heard This Before, Right?You should be aware of the risks ofrunning online into fake ‘gurus’ who profit by circulating malicious sensations, rumors and gossip based on outdated online resources, misconceptions, and ignorance. This year there are even more speculations about Portuguese taxes than usual. That is why please be very cautious when seeking advice.

Even though our resources are very reliable, this
article is just for your reference and should not be treated as guidance for
your independent decisions that may give rise to tax charges or benefits. We
are not liable in whatever manner or to a whatever degree for any negative
consequences that may result from your personal judgments. For a well-rounded and profoundly balanced consideration, please
contact our experts.

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